It is our natural tendency to weigh cost against value. But how do we know if we are using the right unit of measure (UOM) in doing so, and how do we measure this value?
The standard approach is that we translate all different aspects of the functional equation to hard currencies (e.g. dollars, euros) to obtain a total calculation and understand the impact of each aspect. But can we translate all aspects in life to hard currencies? And doesn’t this imply that we put too much emphasis on costs at the expense of value? Small wonder that in today’s economy controllers and CFO’s have become such important roles.
How do we define the value that we are aiming for? I read an article the other day that stated that in the first years each Tesla was sold at a loss of 11,000 dollars. From an accounting perspective this might be undoubtedly true, but it doesn’t factor in aspects like the shift of mind that people are making to choose options for transport that create less pollution and result in a better environment. And what will the effects of these benefits be ten years from now. There’s no doubt that these aspects aren’t covered in the calculation of this loss of 11,000 dollars.
So how can we make value more understandable, tangible and measurable? And what should the unit of measure for value be?
Of course, each person has his own perception of value. This calls for a unit of measure that covers the perceived value aspects of all involved stakeholders. If you need to take an important decision that affects your family, you probably would want to gather the relevant ‘value aspects’ to be able to discuss them with your family members.
Let’s take a look at a simple, domestic example of a family consisting of two parents and three children. The parents are considering moving to another city, to buy a house that is bigger, better equipped and closer to the office. This provides three value axes from the parent’s side on the value map. But adding the perspectives of the children to the equation will dramatically change the looks of the value map. What about proximity to school? Impact on current social lives of the children? Air quality of the location? To arrive at a substantiated conclusion all relevant aspects must be considered and valuated. This concerns the rational and hard cost aspects as well as the softer, often intangible, emotional values.
In both personal and business occasions it will bring many new and important insights to have a well-defined value analysis. This can only be achieved by involving all stakeholders in jointly building a value map that contains input from different angles. This value mapping method offers an approach that enables the participants to bring in the values that they deem important and to challenge them in a structured way. This all to ensure that the right values are targeted and that the associated costs can be calculated correctly.
Are you sure that your company value map has a multi-disciplinary look, and is not based on costs drivers only?